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2026 VAT Shake-Up: Why DDP to the EU Will Look Very Different for UK Exporters

 

The UK Carbon Border Adjustment Mechanism (CBAM) is a new policy designed to place a carbon price on emissions embedded in certain imported goods. Announced by the UK Government and due to take effect on 1 January 2027, the mechanism aims to prevent carbon leakage and level the playing field between domestic producers (who face UK carbon pricing) and overseas suppliers that produce more emissions-intensive goods without equivalent carbon costs (GOV.UK+1)

 

Key Facts

  • Start date: 1 January 2027.
  • Sectors initially in scope: Aluminium, Cement, Fertilisers, Hydrogen, Iron & Steel.
  • Greenhouse gases covered: CO₂ across sectors; N₂O for fertilisers; PFCs for aluminium. (International Carbon Action Partnership+1)
  • Mechanism type: UK CBAM is designed as a tax-based mechanism that charges a carbon price on embodied emissions in imports (the UK’s approach differs from the EU’s market-based CBAM in several respects).
  • Calculation principle: The CBAM charge will be calculated by multiplying the embodied emissions of the imported product by a sectoral domestic carbon price published periodically by the UK Treasury; relief is given where an equivalent carbon price has already been paid abroad. (A&O Shearman+1)

What specifically is changing from 1 January 2026?

Changes to Regime 42 in France

Although the principle applies EU-wide over time, France is ahead with concrete rules. Key changes for UK businesses selling into France under DDP from 1 Jan 2026 include:

  • The abolished option of using a non-EU company’s limited fiscal representative under Regime 42. Previously, a UK business could import under CPC 4200 via a French fiscal representative, avoiding registration in France. From 2026 this will no longer be allowed. (MHA)
  • UK businesses will have to register for French VAT and file French VAT returns if they continue to import into France under DDP via Regime 42. (Menzies LLP)
  • The “import VAT deferred / reverse-charge” mechanism remains but the simplicity of the prior fiscal representation ease is removed. (MHA)
  • UK businesses may need to reassess their supply-chain: alternative options to include routing via another EU Member State (which may still allow fiscal representation) or changing the Incoterm from DDP to something like DAP (Delivered At Place) so the EU buyer/importer becomes responsible. (Menzies LLP)

How will these changes affect UK businesses?

From IMS’s vantage point, here are the key implications and actions UK exporters need to take:

  1. Increased VAT & customs registration burden

If you’re a UK business selling under DDP into France (and potentially other EU states) and currently using a fiscal-representative plus Regime 42 route, you’ll now likely need to:

  • Register for VAT in France (or other EU Member State through which goods are imported)
  • File VAT returns in that Member State
  • Ensure you have systems in place for Intrastat / EC Sales Lists / VAT compliance as required in that country. (customs-link.com)
    This adds cost, administration, and compliance risk.
  1. Re-assess Incoterm strategy

If you don’t want to take on the above burden (or you want to avoid being “importer of record” and resident VAT registrant in the EU), you may consider:

  • Shifting from DDP to DAP (or similar) so that the EU buyer/importer takes on the import VAT/customs burden. This may require renegotiation of contracts and pricing. (espaceglobalfreight.com)
  • Otherwise adjust your supply chain: e.g., import into a Member State that still permits fiscal representation or where you have local presence; or set up an EU establishment.
  1. Supply-chain cost & timing impact

Because the ease of Regime 42 is being removed:

  • Cash flow may be impacted (you may need to pay import VAT earlier)
  • Administrative / compliance overheads will increase (VAT registration, returns, perhaps audits)
  • You may face delays at customs if you haven’t adjusted prior to 1 Jan 2026
  • Pricing may need adjustment (to reflect new VAT/customs risk)
    We advise reviewing your EU fulfilment flows now, rather than waiting.
  1. Contract and customer conversations

Given these changes, you’ll need to engage with your EU buyers/customers:

  • Clarify who bears import VAT/customs risk after 1 Jan 2026
  • Review Incoterm clauses in your sales contracts
  • Be transparent about any additional cost, lead-time or responsibility changes
  • Consider whether continuing under DDP remains the best option, or if switching to DAP (or other Incoterm) is more appropriate

 

What should IMS clients be doing now?

From our perspective, here is a recommended action plan:

  1. Map your current DDP flows into the EU
    • Which Member States are you importing into (directly or via transit hub)?
    • Are you using Regime 42 (CPC 4200) currently?
    • Do you have a fiscal representative in that Member State?
  2. Evaluate each destination country’s rules for 2026
    • For France: assume Regime 42/fiscal representative option is gone for non-EU sellers from 1 Jan 2026. (Menzies LLP)
    • For other Member States: check local rules (some may still permit fiscal representation for non-EU sellers, others may move similarly)
  3. Decide your Incoterm strategy for post-2025 shipments
    • Continue DDP but accept VAT registration/returns in EU country (with associated cost/risk)
    • Or switch to DAP or other terms where the EU buyer becomes importer of record
  4. Update contracts, internal processes & pricing
    • Update templates to reflect new Incoterm/risk split
    • Train your logistics/customs/VAT teams on the changes
    • Review pricing to absorb any increased cost or cash-flow impact
  5. Engage with service providers
    • Ensure your freight forwarder / customs broker is aware of the changes
    • Consider appointing a fiscal representative or VAT agent in the Member State (if continuing DDP)
    • Consider alternative fulfilment hubs (e.g., Netherlands, Belgium) if more favourable regime remains

In summary

The changes to Regime 42 and the evolving position of DDP shipments into the EU from non-EU sellers (such as UK exporters) mark a significant shift. From 1 January 2026, UK businesses that have relied on the “import via one EU Member State under CPC 4200 / Regime 42” model will need to adapt if they continue to sell under DDP. For many this will mean increased VAT registration burden, higher administrative cost, potential cash-flow impact, and a strategic decision on whether to switch Incoterms.

At IMS, we recommend you take action now – map your flows, review your Incoterms, update contracts, monitor your costs and engage with logistics/tax advisors – so that when 2026 arrives your business is ready, compliant and cost-efficient.

If you’d like IMS to assist with automating your supply chain processes or using technology to better manage your shipments, please don’t hesitate to get in touch.

 

Disclaimer: This blog post is for general information only and does not constitute legal or tax advice. Businesses should consult with professional advisors for their specific circumstances.